CUSD

Introduction

CUSD is a decentralized stablecoin minted by collateralizing eligible LP positions on Chad Swap. It is designed to maintain a stable peg to the US dollar through a combination of collateralization rules, redemption mechanisms, and governance controls.

Minting CUSD

To mint CUSD, users must collateralize LP positions from Chad Swap. The eligibility of an LP position and the maximum borrowable amount are determined by the following criteria:

• Token Whitelisting:

  • Both tokens in the LP position must be included in the protocol’s whitelist, maintained via governance.

  • The whitelist is stored in a protocol configuration smart contract, with entries specifying the collateral ratio for each token.

• Collateral Ratio:

  • Each whitelisted token has an associated collateral ratio (CR), expressed as a percentage (e.g., 150%), which determines the maximum loan-to-value (LTV) ratio for borrowing against that token.

  • For an LP position comprising two tokens,T1 and T2, with collateral ratios CR1 and CR2, the effective collateral ratio for the position is Creff=min⁡(CR1,CR2) .

• Maximum Borrowable Amount:

  • The value of the LP position is calculated using the current market prices of the underlying tokens and the position’s liquidity within its price range, as per Uniswap V3’s concentrated liquidity model.

  • The maximum borrowable amount of CUSD, ( M ), is determined by:

  M=V× (1/Creff)

where ( V ) is the current market value of the LP position.

• Fee Accrual: Collateralized LP positions continue to accrue swap fees, which are claimable by the LP, ensuring that borrowing does not sacrifice yield generation.

Stability Mechanism

Maintaining the peg of a CDP-based stablecoin is challenging due to sell pressure from users leveraging or hedging their positions. Chad Finance addresses this through a redemption mechanism, designed to create an artificial price floor and incentivize arbitrage:

• Redemption Price Floor:

  • Any user can redeem CUSD for the LP fees of any collateralized position at a fixed price of $0.99.

  • This creates a hard price floor for CUSD, ensuring it does not fall significantly below its peg, as arbitrageurs are incentivized to buy CUSD on the secondary market and redeem it for LP fees at a profit.

• Debt Reduction:

  • Upon redemption, the equivalent amount of CUSD is burned, and the borrower’s debt is reduced by the same amount.

  • This creates a self-repaying mechanism for borrowers, as the redemption process effectively repays part of their debt using accrued LP fees.

• Implementation:

  • The redemption mechanism is implemented via a smart contract that tracks the accrued fees of each collateralized position and handles the redemption logic.

  • The contract ensures that redemptions do not exceed the available LP fees, preserving the integrity of the borrower’s position.

Risk Considerations

• Collateral Volatility: LP positions are subject to impermanent loss and price volatility, which may lead to liquidation if the collateral value falls below the required threshold. Liquidation thresholds are determined by governance and enforced via smart contracts.

• Peg Stability: While the redemption mechanism creates a price floor, it does not guarantee a peg under extreme market conditions. Governance may adjust parameters, such as redemption prices or collateral ratios, to maintain stability.